New Housing Aims at Senior Needs

Two and a half years ago, Everly and Madeline Terry, aged 77 and 80, faced a dilemma about where to live. With Everly’s bad back and Madeline’s dislike of cooking and cleaning, the house where they had lived for 25 years was becoming a burden.

Yet a nursing home didn’t seem to be the answer. The Terrys believed they were much too fit and able, enjoying walks around the neighborhood, participating in church activities and attending plays and concerts.

The answer for the Terrys was to move into The Balboan, a congregate living facility. There they enjoy the privacy of their own suite and at the same time have the convenience of eating their meals in the group dining room. They can use the facility’s van for transportation (or their own car, which is parked in the garage). They can get a haircut or manicure in the beauty shop, exercise in the health spa and attend classes in a diverse number of subjects such as geography, Spanish and contemporary religion.

Lured by the increase in the number of elderly such as the Terrys, developers and businesses are rushing to build this type of rental housing.

In San Diego County, those in the field include San Diego-based developers such as Pacific Scene, Christiana Cos. and Income Property Group-Retirement Villages, as well as out-of-town firms.

With so many new units opening and others scheduled to be built, many fear the county will experience an oversupply, leading to rising vacancies and some failures.

Over the next three years, 1,500 new units will be completed, with demand expected to be between 900 and 1,200 units, according to a marketing study conducted for two doctors who are building La Vida Del Mar in Solana Beach. This could push vacancies up to 11.5%, the study predicted.

“There is going to be a tremendous shake-out in the industry,” predicted W. Major Chance, president of Income Property Group-Retirement Villages, which has three congregate projects under construction in San Diego County. “There are too many developers who think congregate housing is a panacea. This is a hotel operation with round-the-clock care. The building phase is the easy part.”

Because of the expertise required, Chance formed a separate company, Health Care Group, to manage the congregate projects and convalescent hospitals owned by his firm. The company also has facilities in the Los Angeles area.

Moreover, builders “are notorious for jumping into what looks promising,” said Tawfiq N. Khoury, president and chief executive officer of Pacific Scene, whose Pacific Springs subsidiary has five congregate facilities in operation and nine more scheduled to open in the next year. Of the open facilities, two are in San Diego County--one in Escondido and one in El Cajon. The rest are in other parts of California and Arizona.

But Khoury thinks lenders are becoming aware of the potential problems within the industry and so will inhibit new supply by refusing to make loans.

Older facilities which did well when “they were the only game in town” will likely be hurt the most by the increase in the number of new units, said Jerry Quigg, director of the Retirement Center Advisory Service in the Los Angeles office of Laventhol and Horwath, the national accounting firm.

As an example, in January the 6-year-old Balboan registered 87% occupancy, compared with 100% a year earlier. The facility, which is owned by Milwaukee-based American Medical Services, is scheduled to undergo a complete refurbishing.

Congregate housing serves one segment of the growing seniors market, which is divided into three categories by health and by age, said Gary H. London, director of real estate services for Laventhol and Horwath in San Diego.

The first category, which London calls the “go-go,” consists of the newly retired who remain quite active. The second group is called the “slow-go,” those at whom congregate housing is aimed. This group, usually aged 75 and over, is still capable of living independently but requires more services such as meal preparation. Last is the “no-go,” who require intensive care in nursing homes.

The concept of congregate housing for seniors originated in England after World War II. In this country, religious organizations were the first to operate congregate facilities, starting about 30 years ago. At the beginning, most were life-care communities--in which residents paid a certain amount of money up front in exchange for a guarantee that they would be cared for for the rest of their lives.

Some became tainted by financial scandals, however, and the industry focused more attention on rental congregate because residents didn’t have to risk their life savings, and they could move if they didn’t like the project.

Only in the last 10 years have private, for-profit businesses and developers been involved in congregate housing in any significant way, and the industry is still very much in its infancy, with no dominant players. Religious organizations still operate many projects--both life-care and rental. In San Diego County, for example, the White Sands of La Jolla is affiliated with the Presbyterians, and the San Diego Hebrew Home is being built in Encinitas.

The private for-profit sector has been attracted to congregate housing because of the growing number of elderly, the affluence of a large chunk of this population and the fact that such housing does not hinge as much on economic cycles as for-sale housing.

About 11.5% of the population, or 26 million people, is over age 65, according to a 1984 Congressional Office of Technology Assessment report. By 2010, this figure is expected to be 14%, or 39.3 million people.

Most importantly, the 75-plus age group, the target market for congregate housing, is growing faster than the 65-to-74 segment. In 1980, this age group represented 4.5% of the population, or 10 million people. By 1990, this figure is expected to increase to 13.7 million people.

In San Diego County, the percentage of the population which is elderly is less than the national average, surprising many who view this area as a retirement center. In 1984, 10.8% of the population, or 221,300, were 65 and older. By 1990, this is expected to climb to 12.2% and to 12.8% by the year 2000, according to the California Department of Finance.

Businesses want to serve this growing number of people because many have the money to pay for congregate care. In 1983, 39% had annual incomes of at least $20,000, which is the minimum income needed to live in most facilities.

Rents typically are between $1,000 and $2,000 a month for a one or two bedroom unit including one or two meals a day and other services. Moreover, 72% of elderly couples own a home, and 84% of that group own it free and clear, which means they can use the proceeds from the sale to help pay for congregate care.

While the demographics indicate that congregate has a bright future, it is a difficult field in which to succeed, analysts say, because the industry must overcome a negative image and because so much management skill is needed. Most of all, the facilities must not feel like institutions yet must be operated with institutional cost efficiencies, particularly in the food area. Another difficulty is that it takes much longer to fill up than with a typical apartment project.

In addition, a successful project must be located in a nice neighborhood, so that the children do not feel any guilt about having mom or dad live there, industry experts say.

Location near shopping facilities and other services also is important because it adds to the residents’ feeling of independence. Significantly, studies have shown that more than 50% of residents come from within a five mile radius because they want to stay near where they have been living--close to their friends, their family and their church.

“The industry must overcome what I call the ‘have-to’ factor,” said San Diego real estate consultant Steve Aranoff. “Most people don’t move in because they want to. There are a large number of people who could move in but don’t want to. In addition, many people over the age of 70 don’t really understand what a congregate facility is.”

The units take such a long time to rent, Chance said, because “this is the hardest decision these people will ever make because they have to admit to themselves and their loved ones that they are no longer capable of taking care of themselves.” Quite simply, it is the last move most of them will ever make.

“Most potential residents visit the project as many as six times,” Khoury said. “They consult with family members, children, their financial adviser, their doctor and their clergyman. They must sell a house or condominium, which takes time. It is not something which is done lightly.”

Khoury estimates that it can take as long as three years to fill a project of between 100 and 150 units. For example, the Pacific Springs in Escondido rented only 28 of 105 units in its first five months.

Pacific Scene studied congregate housing for three years before deciding to start their Pacific Springs subsidiary. “We visited many facilities which I found gloomy and depressing, and I couldn’t think of my mother living there,” Khoury said. “I wanted to build something my own mother would be happy living in--very nice, safe and secure, something with the atmosphere of a four-star hotel.

“I personally selected the china and linens. We have fine crystal glasses, table cloths and fresh flowers. At the same time, I didn’t want it to be prohibitively expensive. We wanted to charge $1,000 for a one-bedroom and $1,600 for a two-bedroom (including meals and other services), an affordable price for a good segment of the population.”

As an example, the Escondido project, a three-story Spanish style building, has red tile roofs and a beige stucco exterior. Inside, the plush carpeting is aqua with the wall coverings and furniture done in matching aqua and peach fabrics. The lobby area looks like a large living room, filled with comfortable sofas and arm chairs.

On a recent morning, seven residents gathered to wait for the van to take them to Balboa Park.

All 105 units have full kitchens. (Some congregate projects such as the Balboan do not.) They contain many features especially designed for elderly residents--raised plug-ins, a lowered snack bar, an emergency pull cord in the living room and bedroom, lowered closet pole and a large bathroom with either a bathtub or a large shower with a seat in it.

Each floor has a living room with a large screen television. The project also has an activity room, a library, a billiard room, a music room and a beauty shop.

Christiana Cos. also studied the market carefully before deciding to enter the field. The company purchased land in Rancho Bernardo on which it originally intended to build condominiums with congregate care services. Currently, Christiana is trying to sell the land. If negotiations fall through, in May the company hopes to start building 146 rental units and a 59-bed skilled nursing facility, said Raymond Logan, vice president of Christiana.

While rental remains the focus of congregate housing, a few developers are building condominiums that offer congregate care type services.

At the high end of the price spectrum, The Premier in the Golden Triangle area near University Town Centre is scheduled to be ready for occupancy by the fall of 1987. The 306 units, with prices starting at $180,000 for a one-bedroom, will be contained in two 15-story towers as well as low-rise buildings.

A monthly home owners fee of between $700 and $1,200 includes one meal per day and other services. Other meals are also available.

The developer, Retirement Residences of the West, based in Larkspur, has completed a similar project in Marin County outside of San Francisco.

In the Lake San Marcos area, Income Property Group-Retirement Villages is building Chateau Lake San Marcos, a 137-unit condominium project next door to a 22-bed skilled nursing facility. Prices for one- and two-bedroom units range from $86,500 to $145,000. They are scheduled to be completed in June.

This concept of locating a convalescent or nursing facility next door or close by a congregate project is key to the firm’s concept, so that people will only have to make one move. If they become sick or incapacitated, they can simply move next door. This is particularly important to couples who do not want to be split up, Chance said.

In Escondido, the 115-unit rental project Las Villas Del Norte, which should be finished in June, will be adjacent to a 156-bed convalescent hospital. In Carlsbad, Las Villas De Carlsbad, which will be ready at the end of 1986, will be close to Santa Fe Convalescent Hospital.

Others in the field disagree with this strategy; they think stand-alone congregate projects have a better chance of success because residents do not like to look at others who are in worse condition.